by • September 14, 2011 • Business modelsComments Off27

Why local is hard

Local startups are un-bootstrappable. You suffer the up-front product costs and then either attack a bunch of tiny markets in series or use PR to hit them all in parallel. The former is expensive because of your burn rate, the latter is just plain old expensive.

You can’t trust your learning. Are your users in Pittsburgh and Atlanta the same? Probably not. My go-to definition of a customer segment includes the condition that members of the same segment must be able to run into each other at an niche-specific event. If they’re geographically disparate and don’t travel for relevant business conferences, they likely don’t spend money or time the same way.

You need all the data. Local startups are built on the assumption that valuable data exists which isn’t global. If it isn’t global, then by definition you have to gather it again for each location. That means either manual content creation, a huge set of scrapers, or user-generated-content. Each of those is hard enough (for its own set of reasons) when you’re making just one set of content.

Too many chickens, not enough eggs. You need data for users to get value. The major way of getting cheap data is to ask your users. Creating your own data to get the ball rolling is expensive, but doable. But it again comes back to money — since the local market is small, the expense only makes sense if it leads to investment.

Ultimately, my distate for local businesses comes down to funding paths. I truly believe they are un-bootstrappable. This isn’t undesirable because of some abstract distaste for VC — any kind of money is terrific, so take it if it’s there. It’s just unwise to start a business with a probably-unscalable business model that crosses its fingers for VC as a Plan A and has no viable Plan B. Especially when so many better options exist.

Analogues can sometimes clear the fog. For local businesses, I suggest looking toward the big mailing lists. They only need to make one piece of content per day, have an amazing revenue model baked in ($100+ CPMs), and have still decided that targeting more than a dozen-ish major cities is too much granularity to be worth the trouble. They are highly metric-driven businesses with investors specialised in only this. Their model is cheaper to scale than yours and can make more money. If there was a way to make money going super-local, they would be doing it.

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